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In an important judgment affecting transfers from workplace pension schemes, the High Court has ruled that a scheme member who would otherwise have a statutory right to transfer to an occupational pension scheme does not need to be in receipt of earnings from an employer participating in the receiving scheme in order for the transfer to be allowed. This is in direct contrast to the view taken by the Pensions Ombudsman in recent pension liberation cases.

The High Court delivered its judgment in the case of Hughes v The Royal London Mutual Insurance Society Limited on 19 February 2016. Ms Hughes was a member of a personal pension (PP) scheme who asked to transfer her benefits to a small self-administered pension scheme (a type of occupational pension scheme).

Royal London was concerned that the transfer could be an attempt at pension liberation and resisted Ms Hughes’ request. Regarding the statutory right to transfer, Royal London questioned whether Ms Hughes was an “earner” within the terms of the legislation - in the case of a transfer to an occupational pension scheme, a cash equivalent transfer value must be used to acquire “transfer credits” under the receiving scheme and transfer credits “means rights allowed to an earner under the rules of an occupational pension scheme…”.

When Ms Hughes complained to the Pensions Ombudsman, he held that, in order to be an “earner”, Ms Hughes had to be an earner in relation to an employer of the receiving scheme and that she was not such an earner.

Ms Hughes challenged the Ombudsman’s decision in the High Court. In particular, she argued that there was no requirement in legislation that she had to be an earner in receipt of remuneration or profit from employment with an employer of the receiving scheme in order to be able to take her right to a cash equivalent transfer value.

The Court decided in favour of Ms Hughes’ interpretation. The Ombudsman’s interpretation of “earner” involved reading words into the definition which were not there and, having considered case law, the judge was not satisfied that it was open to him to read words into the definition. As it was not in dispute that Ms Hughes had earnings from another source, the Court ruled that she was entitled to require Royal London to pay the cash equivalent transfer value under her PP scheme to the occupational pension scheme.

As a result of this decision, there will be less scope for trustees and providers to rely on the technical requirements of the transfer value legislation to resist a request which they believe may not be in the member’s best interests.

This will not, however, remove the need for appropriate due diligence in such cases and a balance will continue to need to be struck between members’ rights and pension liberation concerns.

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